Improving transparency in the fintech business lending market

Improving transparency in the fintech business lending market

theBankDoctor, Kate Carnell & Fintech Australia have published a detailed report on improving transparency in the fintech business lending sector.

This project has been twelve months in the making and represents a line in the sand on industry self regulation which is needed to ensure this rapidly emerging sector fulfills its potential of becoming a significant source of funding for Australian SMEs.

I started researching fintech business lending some three years ago when I recognized these lenders could help the large number of businesses unable to access bank funding. These SMEs typically want to borrow less that $250,000 and lack property which could be offered as security.

Through the use of technology, fintech business lenders can make a real difference to small businesses but access to funding is one thing, understanding all the terms and conditions is another. It is almost impossible to make apples with apples comparisons between the wide range of offerings, especially in relation to the total cost of borrowing where annualised rates of interest range from 14% pa to 80% pa. I figured that if someone like me with 30 years experience in financing businesses struggled with this, what hope do time poor and often financially unsophisticated SME have?

So I decided to conduct a market survey of fintech business lenders in order to help SMEs answer three simple questions:
1. Is this the right product for my needs?
2. Do I know exactly what it is going to cost?
3. Do I know that I can’t get a better deal elsewhere?

Fintech small business lending research report – embargoedBut as an unauthorized, unelected and unpaid SME advocate, I had limited capacity to get lenders to participate in the survey and then my findings would be unenforceable anyway. That’s when I reached out to Kate Carnell and FA who willingly agreed to conduct this joint project.

Fintech Australia brings its authority and membership base although not all fintech lenders are members of FA and lenders, whether members of FA or not, operate different business models and have diverse views. One of the most telling responses in the survey was that lenders were evenly divided on the question of the adequacy of the current level of industry transparency and disclosure. This provides an insight into the challenges of self regulation

Credit must go to FA and the survey respondents who have embraced this opportunity. With initiatives like the Glossary of Terms, fintech lenders are now setting standards for other non-bank lenders to follow.

Kate Carnell and her team have been constructive and collaborative in helping fintech lenders reach agreement on areas in which more can be done to improve transparency and disclosure but the fintechs are on notice with Ms Carnell making it clear she “will keenly monitor progress against the resolutions in this report”. These resolutions are:

• FA and its industry working group will consult with stakeholders to develop a Code of Conduct by June 2018 to cover unsecured business loans by fintech balance sheet lenders.
• FA and its industry working group will work with the ASBFEO to ensure they comply with 
the Unfair Contract Terms legislation 

• by June 2018 FA and the industry working group would agree on a common set of plain 
English key terms and conditions to be highlighted in a summary page in all loan 

• ASBFEO will facilitate a discussion between fintechs and the Australian Financial 
Complaints Authority to explore alternative external dispute resolution services in 
early 2018 

• ASBFEO will work with the FA to ensure they comply with the Unfair Contract Terms legislation
• will write an education piece, in conjunction with ASBFEO, specifically for SMEs to help them understand the “ins and outs” of borrowing from a fintech.

This report brings the issue of fintech business lending transparency into the public arena. We look forward to continuing to work with all parties to enable these lenders to fulfill their potential of becoming significant, transparent and trusted alternative sources of debt finance for Australian SMEs.

Download the full report on Improving Transparency in Business Fintech Lending


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